Footsie up as traders shrug off speculation over rate rise

Shares on the London stock market were on the rise again today, stretching their bull run to 11 consecutive days, despite mounting speculation that the next move in interest rates will be up.

Goldman Sachs and Deutsche Bank think Bank of England governor Mervyn King will be forced to raise rates next year to combat the highest inflation expectations in the Group of Seven industrialised nations.

Dearer money is expected to boost the pound, which has slumped about 17% against the dollar during the past year, and keep a lid on inflation as Britain's economy emerges from its deepest slump in half a century.

But such a move will be bad news for Britain's exporters, who will lose their competitive edge and suffer a dent to profits after translating profits back into sterling. A weaker currency also makes them more competitive against foreign rivals.

That failed to act as a dampener on stock-market investors, who were happy to see share prices squeezed higher in thin trading conditions. The FTSE 100 index responded with a rise of 16.66 at 4593.27. The index has now risen 463 points, or 11.2%, since 11 July, despite further evidence of a bigger-than-expected contraction in the UK economy during the second quarter.

Life assurer Prudential firmed 4¼p to 429p. Earlier this month the shares were changing hands for 353p.

There is still no light at the end of the tunnel for the world's biggest plumbing equipment supplier, Wolseley, down 5p at 1198p. The company said it expected no signs of a pick-up in market conditions for the rest of this year and had seen pre-tax profits for the 11 months until the end of June drop by 60%. New chief executive Ian Meakins, who replaced Chip Hornsby earlier this month, says market conditions will continue to slow with trading remaining challenging.

That will not come as good news for shareholders who have had a number of profit warnings this year as well as a much needed rights issue back in the spring. Curiously enough, all the bad news is now fully reflected in the shares which have rallied from a low of 585p in March and subsequently regained their place in the Footsie 100 Index.

Lloyds Banking Group marked time at 78.35p after Japanese broking house Nomura raised its rating on the state-owned bank from reduce to buy.

Leading shares were able to extend recent gains in Asia this morning.

In Tokyo, they hit their highest level in nine months amid growing hopes for better-than-expected Japanese corporate earnings and an economic recovery. The benchmark Nikkei climbed 144.11 points to end the session at 10,088.66 but it had earlier reached 10,112.98, its highest level since 7 October.

Hitachi Ltd jumped after press reports claimed the electronics group plans to spend up to $3.2 billion (£1.9 billion) to turn five listed subsidiaries into wholly owned units.

But shares of Japan's leading three shippers, including top-ranked Nippon Yusen KK, fell after they slashed profit forecasts due to a delay in the recovery of automobile and container shipping and higher fuel costs.

Shares of Nomura gained 3.3% to 821 yen and Daiwa Securities Group jumped 3.9% to 556 yen following reports that the two brokerages are likely to have swung to net profit in the April-June quarter of 10-20 billion yen (£639,000-£1.2 million).

Softbank rose 3.8% to 1917 yen after the wireless carrier's April-June group operating likely profit rose 20% from a year earlier, topping 100 billion yen, due to growth in communication fees in its mobile operations and solid business in other areas.

Over in Hong Kong shares rose as investors continued to bet on a speedy recovery in the Chinese economy.

China Shenhua Energy extended Friday's gains to pile on 5.5% following strong power output data last week, which bodes well for coal demand. China's power output in mid-July via major grids rose 7.9% year on year, lifted by hotter-than-usual weather and a revival in demand on a continued economic rebound.